In Strategy 3, we independently estimate the cost of providing remedial education for post-secondary institutions as well as for employers. First we calculate how much it costs high schools to provide students with basic skills. We then assume that the cost to post-secondary institutions and businesses to remediate the lack of basic skills is the same as the cost to high schools of producing "successful" graduates. By "successful" graduate we mean a student who receives a diploma and is not lacking in basic skills. We multiply the per-student cost for high schools to produce successful graduates by the number of students who are not successful graduates; that is, by the number of students who drop out or have to enroll in remedial education in college. We further assume that the cost of remediation is proportional to the number of grade levels by which the unsuccessful high school students are behind.

The true cost per pupil ought to count only those pupils who graduate and possess basic skills.

The purpose of calculating the cost in this way is to capture some of the costs that were missed in the previous strategies. As already described, the true cost of remedial education in post-secondary institutions is likely to be larger than we have previously estimated because we do not count capital expenditures, because remedial education occurs outside of courses officially labeled as such, and because many students who need remedial education do not receive it. By using the amount of operating funds that high schools have to spend to produce a successful graduate, we are more likely to capture the costs of remedial education that occur outside of remedial courses. This technique, however, still does not address the omission of capital expenditures nor does it address the undercount of students requiring remedial services. Nevertheless, this less conservative estimate of the costs per FTE student receiving remedial education in community colleges and universities might provide us with a more complete picture of the costs. Using the high school cost should also provide us with a more realistic estimate of the costs imposed on Michigan businesses.

According to the most recent figures available from the Michigan Department of Education, Michigan public schools spend $4,227 per pupil on instructional services, and Michigan public high schools contain 476,485 students.22 On an operating basis (excluding capital expenditures and non-instructional costs, such as lunch and transportation) Michigan public high schools spend a total of $2,014,102,095 per year. But because of dropouts only 91,691 students graduate each year. And of those who graduate, 14,848 are likely to enroll in a year's worth of remedial education in community college or university.23 In other words, Michigan public high schools spend about $2 billion each year to produce 76,843 "successful" graduates, meaning graduates who will not require a year of remedial education to address their lack of basic skills. Dividing the total amount spent by Michigan public high schools by the number of successful graduates (multiplied by four to account for the fact that it takes four years to complete high school), yields a per successful graduate cost of $6,553 per year (excluding capital and non-instructional expenses).

If we calculate the cost of producing "successful" graduates we discover that the instructional cost of Michigan public high schools may be underreported by about 55 percent. When most businesses calculate the cost of making their product, they divide their costs by the number of products that can be sold to customers. Businesses do not normally include those products that were damaged in such a way that they cannot be sold. For example, a cookie company calculating the cost of manufacturing each cookie would not count those cookies that were damaged in production. While students are not cookies, the comparison is illuminating. The true cost per pupil ought to count only those pupils who graduate and possess basic skills.

If the true cost of remedial education in post-secondary schools is the same as the high school cost to produce a successful graduate, then we multiply $6,553 by the 14,848 FTE students who receive developmental services each year to yield a total cost of $97 million per year. We can further estimate that it costs Michigan employers $6,553 multiplied by 2.29 to handle the 29,085 dropouts produced each year. (The average dropout is missing 2.29 years of high school.) This produces a total annual cost to employers of about $436 million from lost productivity, the cost of teaching workers basic skills, and the cost of acquiring technology to make up for the lack of basic skills among workers. Changing our calculation of the costs so that we use high school expenditures as the benchmark produces a total cost of $534 million to Michigan businesses and post-secondary institutions to address the lack of basic skills among those who have left high school lacking basic skills.

Michigan public high schools spend about $2 billion each year to produce 76,843 "successful" graduates-graduates who will not require a year of remedial education to address their lack of basic skills.